Government planning, infrastructure key growth drivers - Leipziger

George Washington University International Business Professor Danny Leipziger on the importance of governments in planning for the supporting economic growth. Camera Work: Nicholas Boyd. Editing: Darlene Creamer.

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In the prevailing context where economic growth will be harder to generate and global competition will intensify as nationalism grows, governments will have to play more strident roles in planning for and supporting economic expansion initiatives, a leading international economist told a South African audience at the weekend.

Speaking at the Centre for Development and Enterprise, in Johannesburg, Danny Leipziger, a former World Bank VP and currently international business professor at George Washington University, said that the Great Recession of 2008 and 2009 had served to reinforce the indispensible role that governments played in coordinating economic growth and development, as well as in guaranteeing stability.

Leipziger was the vice-chairperson of the 22-member Commission on Growth and Development, which was initiated in 2006 under the leadership of Nobel Laureate Michael Spence to study which policies and strategies had supported rapid and sustained economic growth and poverty reduction across the world. He is currently the MD of the Growth Dialogue, which seeks to connect policymakers and thought leaders to advance the economic-growth cause internationally.

In the commission’s work, which preceded the prevailing economic crisis, it was discovered that only 13 countries, mostly from Asia, had been able to sustain yearly growth rates of more than 7% for 25 years.

Five factors – including market openess, good macroeconomic management, a future orientation, a market orientation and strong government leadership and planning – were identified as having been common across all those countries.

Even ahead of the crisis the commission found that the governments in fast-growing countries had been central to crafting and driving the economic vision and in developing the economic and social infrastructure required to support rapid rates of growth.

“I believe that government’s role is even more indispensible than in the past . . . but it’s not the size of government that matters, but the effectiveness,” he said, noting that governments were currently not only being called upon to act as regulators, but also as risk mitigators.

It would take a combination of factors in the current hostile environment to ensure that a country was placed on a competitive footing. But the deployment, ahead of demand, of well-planned and implemented infrastructure could be an important growth “trigger”.

“I’m a big fan of infrastructure investment, because there is no country in East Asia that has grown rapidly that did not invest highly in infrastructure.”

But infrastructure was but one element, with another key factor being the development of a country’s human capital, as well as putting in place structures and policies to support the development of a domestic manufacturing sector.

Leipziger said that once South Africa had selected, through its national development plan or industrial policy, the areas in which it would compete it should immediately begin benchmarking itself against the international ‘best in class’ in those sectors and not simply against competitors in the neighbourhood.

“For South Africa, there are some major challenges that need to be tackled and it would be a mistake to try and tackle them piecemeal – you have to do a lot of things at the same time to create competitiveness and growth.”

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